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One year ago, the entire American banking system was on life support.  It was only through the intervention of the Federal government, using the promise of a semi-infinite supply of tax dollars that some of the banks survived.  If this infusion of billions and billions of dollars of cash had not been made our entire banking system would certainly have collapsed. The question we need to ask – but we haven’t – is this: is there a message here?

Thanks to the extreme measures the Federal Government took with the TARP program we still have some functioning banks, but a more important thing to consider is this: do we have a functioning economy?  The answer to that question is to be found in the history of the Dow Jones Industrials average for the past forty years.  The thing to note is the behavior of the Dow before the year 2000 and after the year 2000.  Notice anything? How about those two massive bumps?  I mean the one about ten years ago and the one a year ago. You know what those are? Those are bubbles, the signs of an economy that is being artificially and irrationally stimulated – an economy on drugs.

The other thing to note is that Bump #1 didn’t start in the year 2000, it started long before, its roots were in the 1980’s. Until then the Dow had been pretty tame, slowly inching upward ever since World War II. So what happened in the 80’s? The government created 401k plans and artificially stimulated massive investment in the stock market by average people who would have otherwise never invested in the market.  The same thing happened again with the 529 plans.

However, for the people who run our government that wasn’t enough. So they changed the tax laws again to provide a massive income tax credit for anyone who sold their house – and they made a provision so that you could do that every two years. That artificially fired up the housing market.  Then we had also the tech boom – a boom that the Fed actually opposed.  They didn’t like all these upstart companies on the NASDAQ sucking up all the investment money from the old money firms that made up the DOW.  So, the Fed killed Tech by ratcheting up interest rates until Tech collapsed.  After Tech was a smoking ruin, the Fed drastically cut interest rates and thereby fueled the housing bubble even more.

The thing to realize is that our economy, for the past twenty or thirty years has been a dying economy, kept alive by infusions of money from unsuspecting citizens contributing to their 401k plans and their 529 plans. It has been kept alive by people buying and flipping houses every two years.  It has been kept alive by one scheme or another while the true engine of our economy, manufacturing, was exported to China.  But nobody cared because you could buy Chinese stuff cheap at Wal-Mart and everyone was doing well in the stock market or the housing market.

Well, the party’s over, isn’t it?  True, the banks are alive again, having dined on the lifeblood of the taxpayers.  However, there are very few green shoots out there. Does anyone have an idea where our new economic engine will come from? Is it possible for our government to think of another economic scam that will power the country for another ten years? Or, are they running out of ideas?  Does anyone really think we can get by on our American manufacturing capability?  Let’s face it we just don’t make enough stuff anymore.  The future of manufacturing, at least for the next twenty years or so is in Asia, not North America. So what is our government thinking? Well, since the only thing they saved is the banks, one must assume that they figure that’s where the money will come from – i.e. lending at interest. But, let’s face it, the lendees are unlikely to be Americans, are they? No, the money (that’s your tax dollars that you gave them as TARP rescue money) will go to developing countries so they can develop their businesses and then pay back the banks at high interest rates.

Meanwhile, back at the ranch, what can we expect?  The truth is: not much. Our Capitalist engine doesn’t have a transmission anymore. In fact we lost it a long time ago.  We’ve just been coasting along.  The thing we don’t want to…don’t like to…admit, is that we are witnessing the failure of Capitalism.  Unregulated Capitalism – something we have had from many years – soon morphs into Predation: the strong preying on the weak. We have witnessed that. The Predators in our society, i.e. the financial community, have feasted on us.  There’s not much blood left to drink anymore.  They’ll move on, looking for victims in other countries – still propped up by our government.

Here, in the USA, we won’t admit Capitalism has failed – we can’t – it’s like denying religion or something. It’s like being unpatriotic.  It’s like stepping on the flag.  Capitalism is sacred in America – beyond criticism. It’s hard to figure why – after all, can’t we all see that it doesn’t work?  We can’t we simply acknowledge that it is an economic theory and system that just doesn’t work?  I know, I know ,we’re all afraid of the other two “isms”, Socialism and Communism. So we stick with our belief in Capitalism, even though the wheels have come off and we no longer have an engine for our economy – we still believe. We believe. We believe even though we are in a screaming nose dive.

If the past twenty or thirty years have proved anything, they have proved that unfettered Capitalism is a disaster. For proof just look at your bank account.  If we can’t bear to consider Socialism or Communism, then there is only one solution.  We need a new “ism”.  Call it Americanism if you like.  We need a new approach to economics. We need creative minds in our government who can see beyond the payoffs from lobbyists and the pressures of the fat cat bankers.  We need a new voice in economics, a voice of intelligence who can lead our economic recovery with a sound understanding of what went wrong. We don’t need idealogues, whether they are Capitalists, Socialists, or Communists; we need realists: practical, intelligent people who can understand what is broken and fix it. We simply need a new way of running our economy, a new economic theory for the 21st Century.

The question is this: do we have the intelligence and the courage to change the way we do business? Because if we don’t, it won’t be long before we don’t have any business.

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It seems like such an easy question: how much is my house worth? The problem is that this is not an easy question – and that fact that that is a problem is the real problem.  Let me explain…

A long time ago, when Tricky Dick Nixon was President of the United States, our country was running up a huge bill trying to pay for the Vietnam war.  There was only so much money coming in from taxes so we had to borrow money by selling treasury securities to other countries and Americans too.  Treasuries were a pretty safe bet – as good as the dollar, which in those days had its value fixed in relationship to gold.  At one time you could redeem your paper dollar for its equivalent in gold. Later, the paper dollar could be redeemed in silver, if you felt like carrying around bags of silver with you. The point was that a dollar was nothing more than a proxy for your ownership of some precious metals that were stored at Fort Knox or somewhere else.  Nixon’s problem was that there was only so much gold and silver in our vaults – so we could only print so much money.

At some point Nixon or his advisers came up with the perfect solution, disconnect the dollar from any relationship at all to any precious metal – in fact detach it from anything physical. The dollar became a Federal Reserve Note, not redeemable for anything.  This allowed Dick Nixon to print as many dollars as he liked so when it came time for people to cash in their Treasury securities they would be paid back in dollars that were worth much less than if they had been backed by a certain amount of gold. The value of the dollar had dropped – or, another way of looking at it is that the value of gold went up a whole lot.

Which brings us to houses – almost anyway.  There is little doubt that the increase in house prices and lots of other stuff since Dick Nixon inflated his way out of Vietnam War debts was not the same thing as an increase in value. The value of things didn’t change much, just the price because the dollar was losing its purchasing power. OK. So that’s it? No. Not exactly.

If we are talking about the value of a house, and not the price – which we can now see is not the same thing – how do we actually determine its value?  Well, the common sense way of determining the value of something ought to take into account the value of the things that went into it, like wood, stone, paint, drywall, and so forth.  Then there is the cost of labor – a bunch of carpenters, electricians, plumbers and so forth had to be paid for the value of their labor. So we have to figure in that value too. Then there is the value of the land.  How large is the lot? Is it swampland? Is it next to a superhighway? Is it level? Is it cleared?  Some of these items are easy to value, for example, if the lot isn’t level we need to pay for a bulldozer to level it.  And so forth. On the other hand, there are some items that are sort of intangibles, like the proximity to a superhighway.  How do you value that?  This is where things get a little difficult.

The issue we are faced with is trying to place a value on something that has no intrinsic value. It doesn’t cost anything more to build a house next to a superhighway than it does to build it far away.  However, it does make it less desirable.  So, we enter the world of supply and demand, where the value of things is not related to tangible things but to emotional things like desire.  This is where the trouble begins too.

Several years ago we entered a fantasy world of house prices.  The price of houses was going up because…because…well, because the price of houses was going up.  It was a fabulous game anyone could play.  Buy a house, flip it, and make a lot of money.  Except there was nothing tangible supporting the price of houses.  Sort of like the Emperor’s New Clothes, only with houses.  For the past couple of years house prices have been in a near free fall in some parts of the country and they are expected to continue falling. So how far will they go?

Now that the balloon has popped it seems that house prices will have to fall until the “irrational exuberance” of home buyers and the equally exuberant lending banks is completely dead. House prices have to fall to the point where they reflect the actual construction costs of the house, i.e. materials, labor, and land, plus some sort of adjustment for the desirability of its location as determined by the local market.  But all the price inflation due to the irrational exuberance of flipping houses has to go.

Oh. There is one other thing. The dollar isn’t what it used to be either. You need to account for the inflation of the dollar since you bought your house. Figure somewhere between 5% and 10% per year – roughly. It’s a cumulative effect so you need to calculate each year of ownership separately – a computer program might help a lot.  Then there is depreciation. Things wear out. Houses get old and start to fall apart, so unless everything is fixed up like new you need to deduct the loss in value from normal wear and tear, plus the natural aging and decay of things.

All things considered, your house is probably worth a lot less than you think it is – unless you happen to live in one of those parts of the country that, for some reason or other, never got caught up in all the irrational exuberance. For those areas out west like California and Arizona and in the east like Florida, homeowners face more pain to come in the great housing value reality check.

House values are a bit difficult to figure at anytime because of all the ingredients that go into their value like materials, labor, loss of value of the dollar, and so forth.  Irrational exuberance is not part of this equation. It doesn’t add value; it only increases the price.  The problem is that as the irrational exuberance of home buyers fades, so does the price.  Eventually, houses will return to their real value, but it looks like a lot of formerly exuberant, but many ordinary American citizens will continue to have an extremely painful reintroduction to reality.

Thank God the banks are OK.

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It is nearly fifty years since Stanley Kramer’s movie, “It’s a Mad Mad Mad Mad World” , was released.  It is an Oscar winning comedy that points out an important truth about the world we live in: sometimes we can’t see things that are in plain view.  In the movie, a group of people search for a hidden treasure buried beneath a “big W”, but they are unable to find the big W.  It turns out that the big W consists of the crisscrossed trunks of some palm trees, and the people have been running around the base of the trees, looking for the big W, but never realizing it was right in front of them.

A  few days ago, Bill Moyers pointed out another big W in our world.  It’s one that we are only dimly aware of; it’s one that we have an inkling of – but no more. And we fail to realize that this modern big W has unseen branches that deeply affect our lives.  The thing about the big W is this: it’s not that we don’t see it, it’s that we don’t realize what it really is.  When we do see this massive structure and finally grasp its significance we can’t help but be awed by its size and power, and we can only wonder why we didn’t see it before – just like the characters in the movie never recognized that the tree trunks were not just tree trunks, they were a massive W, and they were therefore the marker for a buried treasure.

In the most recent edition of Bill Moyers Journal on PBS, he talks with MIT professor Simon Johnson and Congresswoman Marcy Kaptur about the economic meltdown.  It is in listening and watching this that I realized that, however dire a picture the three of these people paint – and it is dire, there is much more that is not seen.  I decided then to write about the aspects of this “dire picture” in multiple parts.  In all parts the theme is the same: the invisible hand of the wealthy and the consequences to our country.  In this part I will follow the lead of Bill Moyers and write about the byzantine relationship between our financial system and our government.  But don’t think our modern Byzantium ends there – I will discuss other aspects of this “hidden in the open” system in future writings.

Let’s suppose that you took your car out to the freeway one day and floored it.  You drove your car at its absolute limit of capability regardless of other traffic, road conditions, police presence – anything.  You just drove as fast as you possibly could. What would happen? We all know. You would eventually crash. Now, would you call that an accident?  Is it an accident when something happens that is completely predictable?  The fact that you were driving with reckless abandon doesn’t mean you had an accident, you knew you would crash eventually. The fact is that you had a crash, you didn’t have an accident.

In the aftermath of the Great Depression, President Franklin Roosevelt and his administration created a set of financial system rules and safeguards that would prevent the collapse of the economy as it happened in 1929.  These rules and safeguards amounted to constraints on our financial system – our banks. They also consisted of an independent government agency, the Securities and Exchange commission, they would be the police that watched the bankers and stopped them from speeding again.  Beginning with the Clinton administration, and maybe even before for all I know, this system of protection was dismantled.  It’s destruction was completed during the reign of George W. Bush.  We all know the result – the liar loans, the mortgage debacle, the credit default swaps, the implosion of the banks, the bailout of the banks by the taxpayers, the destruction of the world economy.

The thing we don’t realize, the thing that Bill Moyers points out, is that this was not simply the doings of one or two Presidents who used bad judgment.  This was the doings of Congress as much as it was the actions of the Presidents.  But it all started with the financial industry. It began with money – the unending, ceaseless desire for the accumulation of more and more wealth by America’s wealthiest people.  The issue was not making money by honest means – it was about making money by any means possible – honest or not.  The financial industry, via their lobbyists, managed to convince Congress to make the financial laws they wanted and to repeal the financial laws they didn’t like – and then the  Presidents went along with the whole thing.  The financial industry put its foot on the accelerator and floored it without regard to the certainty of an eventual crash. And our “police” not only looked the other way, they cleared the road.

Why?  Money. Money in your pocket – if you are a Senator or a Congressman.  Sure, we all get to vote for the Senator and Congressman of our choice, but once they get to Washington who do they listen to?  Not us – they don’t need us anymore.  The vast majority listen to the siren song of the dollar bill. It is a fine system we have created here.  Enormously wealthy people wielding enormous power with payoffs, via lobbyists, to our elected representatives. And the lobbyists themselves?  Almost every one of them is a former Senate staffer who knows exactly how the system works, and is also someone who has a close personal relationship with our elected representatives in Congress.

We have in this country an invisible shadow government, a government made up of the wealthiest of citizens who rule not by threat or demands, but by the allure of money – lots and lots of it. No Mafia tactics needed here, no extortion or midnight bombings, no arm-twisting coercion.  Just money that flows unceasingly to the people who have been elected by us.  They now have the power to make and unmake the rules and laws, and they do – and they did – all for the benefit of the financial industry. It’s right there in front of you if you care to look.  It’s a big W staring you in the face.  There is no need to sit and wonder how this economic catastrophe happened.  The thing to wonder about is who got rich from it?  You know all the money that was lost? Where did it go? Somebody made a lot of money in all of this: the smart ones who knew it was as certain as a car crash. And, undoubtedly,  some of the really wealthy people got a lot wealthier.

Here’s something to consider: is this hidden hand of the wealthy the entity that really runs our government? Are our elected representatives nothing more than pawns for the owners of the banks ?  You might think so, and it certainly is a major part of the picture, but there is a lot more to our big W than just the banks.  I’ll write about that in Part 2.

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In 1776, a group of revolutionary minded people, many of whom were Freemasons, created the United States of America.  This new country was to be a break from the past. The leaders of the movement: George Washington, Thomas Jefferson, Benjamin Franklin, John Hancock, and many more were Freemasons.  They were informed and inspired by some of the tenets of the Freemasons, tenets that were at odds with the established manner of world governments at that time.  Many of the governments of various European countries had a long established and close relationship with one branch or another of the Christian church.  Most of the governments had kings or queens, whose right to rule was based upon their ancestry.  The American revolutionaries had a different concept in mind – a democratic, elected  government that had no association with any religion.  It was a daring concept, and a complete break from the European view of government.  These Freemasons even documented this break from traditional government when they made the Great Seal of the United States and when they printed the one dollar bills that we have today. One each of these bills are printed the words: Novus Ordo Seclorum, i.e. A New Order of (0r for) the Ages.

The New order that was founded by these Freemasons created a Republic where the principal ideas and visions were centered on individual liberty.  A key concept was that the government was not made up of the elite or the wealthy or the influential or the religious leaders. The government was changed regularly, based upon a schedule of elections, and anyone could become a member of the government – as long as they could convince their friends and neighbors to vote for them.  This concept of a republic also implied something else, there would be a distance, a division, between the will of the wealthy and the will of the government, i.e. the will of the people.

Today, as our economy lurches towards a dubious recovery from a worldwide economic meltdown, we can observe that there has been a key change in the Novus Ordo that was created by the Freemasons.  There is no longer a distance between the government and the wealthy. Indeed, it was the closeness of the wealthy to the government that directly led to the meltdown.  It was the money in the pockets of the our governmental representatives that led to the relaxation or the complete annulment of laws that had protected us from nefarious economic practices by the banking industry.  It was the government’s Securities and Exchange Commission that looked the other way when Bernie Madoff ran his gigantic Ponzi scheme.  Over the years, the wealthy had established a cozy relationship with the representatives of our Republic – all for the purpose of gaining more money for themselves and less for the average citizen.

Today, the wealthy have almost a stranglehold on our government.  Some would say it is more than that.  They say we have an oligarchy – a situation where hidden, wealthy people rule through a puppet government and all laws are made to benefit the small, wealthy elite.  All you need to do is look.  Our American companies have become multinational. Our once good paying jobs have been moved to other countries where the cost of labor is much less.  Our government has “reformed” our tax laws allowing millionaires and billionaires to pass on their fortunes from one generation to the next while not a cent of tax is imposed on this transfer of wealth.  The wealthy have used the government to create income tax cuts for themselves and income tax increases for the middle and lower class.

The New Order created by the Freemasons is fast dying.  Today, our multinational companies, owned by the wealthy, fabricate our goods in China- creating no jobs for American workers – except those who work for Wal-Mart.  Our multinational companies pay little or no tax to our country, because they are officially located in the Bahamas or some other idiotic legal location.  And our government just winks and says, “OK”.  Our country has been transformed without our even realizing it.  We have a new world order that we never saw coming.  In this new world order, it is the wealthy who rule and it is the poor who pay taxes.  In this new world order everyone can vote, but it hardly matters who you vote for. Money flows like water from the mighty Mississippi into the pockets of our Congressional representatives who pretend to ask for our opinions but then vote the way they are told.

The Novus Ordo Seclorum of the Freemasons has gone, and we didn’t even see it go.  We can only sit and watch, dazed, as the government tires to stimulate a dying economy, knowing in our hearts that we are only surviving on financial life support.   How can our economy ever rise again when the wealthy have sent all our jobs to China?  How can our children ever compete again when our schools can’t compete with those in Malaysia or Norway?  How can we lead and inspire the world when so much of our television and radio news is now filled with the lies of the wealthy media owners, propaganda, and gross distortions of truth?

The new order of the world is here.  It is the multinational companies of the world who now make the economic rules. It is China that will be the world’s supplier of almost everything anyone needs.  We are to be the consumers, borrowing money from banks in order to live – while living forever in debt.  Meanwhile the people of the wealthy class return to their rightful place: Rulers of the World.  And the elected leaders of our Republic grovel before them and do their bidding – all for a pocketful of change.

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I would guess that, prior to the recent World Economic Meltdown (WEM), most of us never gave much thought to which industries were “too big to fail”.  Who knew we couldn’t live without AIG or Bank of America?  Insurance companies and banks come and go, right?  It turns out that this rule only applies to the smaller banks and insurance companies.  It seems that the big banks and insurance companies, taken collectively – even individually as with AIG – are indispensable and critical to the very existence of the United States. Therefore, the U.S. government had to step in and rescue these companies – for the good of the country.

So, I’ve been thinking that it might be nice to know in advance which other companies or industries are also too big to fail, just so I can be prepared. Apparently the U.S. automobile industry is also too big to fail – at least the Ford and GM parts of the industry – maybe not Chrysler. It seems that the economic impact of losing GM (Ford is doing OK) would be detrimental to the U.S. so we just aren’t going to let them fail (a structured bankruptcy is not really failing).  My question then is this: is there some way I can identify other sectors or companies that are also too big to fail?  What other companies can expect a guaranteed government lifeline if they also get into financial trouble?

I took a look at the 2008 Fortune 500 list of America’s biggest companies, which, incidentally,  is called the Fortune 1000, to see if I could see some sort of pattern or trend that would help me identify the other “too big to fail” candidates.  I found that, of the top 25 revenue earning companies in the U.S., they could all be placed into one of the following six groups:

1. Oil/Energy

2. Finance/Insurance

3. Retail

4. Communications/Technology

5. Automobile

6. Health/Medical

The sectors above are listed in order of total revenues for 2008. The number one spot goes to the oil industry with total revenues of about $1.2 trillion. The financial sector came in second with revenues of about $810 billion.  I have to assume that the reason we have to save the banking/insurance industry is because they play such an important role in our economy. However, our government decided that the auto industry is also to big to fail and they came in at only fifth place with revenues of about $360 billion.  Given the recent measures taken by our government to save both the financial and auto sectors of our economy, I think it is only reasonable to expect that the other members of the top five would be saved if they imploded too.

My conclusion is this: if the time comes when disaster strikes any of these other sectors of our economy, namely oil/energy, retail, or communications/technology we can expect our government to immediately step in and declare that these are “too big to fail” also.  This must be especially true for Big Oil because they are the largest sector of our economy.  It’s probably comforting for Big Oil to know that if they ever do get in trouble, we, the American taxpayer, will be there to bail them out.

As far as the health/medical sector goes – I don’t know.  You guys didn’t make it into the top five, you know.  And what about the aviation sector: the airlines, airplane manufacturers, and so forth?  Sorry, you didn’t even make the top ten – you’re actually not even on my chart! I guess we can do without the U.S. aviation industry, right? Maybe we could outsource and insource all our aviation needs from other countries!  After all this is a global economy, right?

Come to think of it, we could probably outsource and insource our medical needs too, couldn’t we?  I mean if it really comes down to it, couldn’t we just buy all of our pharmaceuticals from China or India? Couldn’t we just use our electronic technology to outsource diagnostic testing to Canadian or British or even Chinese doctors?  Maybe so… Sorry, health/medical, but you’re only number 6.  You’re out too.  Sorry.

So that’s it then.  There’s my top five list of U.S. industries too big to die.  We are saving two of them right now, and with only three more to go.  I wonder who’ll be next?

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Paul Krugman, the Nobel prize winning economist, is fond of using the term “Zombie banks” to describe banks that are operating despite having liabilities that exceed their assets.  Most of our major banks have fallen into this category – the living dead.  However, it seems that the situation is changing with the Obama/Geithner rescue plan for our financial giants.  We, meaning the government – meaning us, will work a deal with private investors to buy up all the toxic waste inside the banks which we either pay for directly or guarantee to the private investors.  Wall street likes the idea and bank stocks have surged recently as blood begins to flow again into the pale white faces of the undead bankers.  The problem is: it’s our blood.

One thing that our government has conveniently overlooked – at least, and hopefully only for the moment – is that these nearly dead banks never had a soul.  These undead banks functioned more as vampires in our lives than as agents of community development.  Have we forgotten credit cards that sucked people in with promises of 0% interest only to escalate to 33% interest when a payment might be a microsecond late?  Have we forgotten how these vampires gleefully raised the rates on all of our credit cards simultaneously simply because we had somehow overlooked a single credit card payment for a day?  Have we forgotten what it is like to be in Credit Card Hell?

Then, of course, there are the mortgages – the ones given to unsuspecting homeowner wannabees that just wanted a house of their own but needed a break on mortgage payments.  So they got an adjustable rate mortgage that was easy to pay during the first year, but after that the payments were just impossible because the interest rate adjusted into the stratosphere.  Which, of course, is exactly what the banks wanted. Just like Credit Card Hell, the banks had also created Mortgage Hell.

Did you know that General Motors is a bank?  I thought they made cars. It turns out that they are actually a bank, so they got TARP bank bailout funds.  I thought General Electric made appliances.  It turns out that GE Capital Finance is the largest finance company in the world.  It seems that you can make a lot more money by loaning money to people than by building stuff and selling it to people.  When President Obama was on Jay Leno’s show he said that over the past 15 or 20 years about 40% of the U.S. economic growth was based upon the financial sector. That’s what happens when you lend money to people at extremely high interest rates.  So now, in order to rescue our economy, it has become necessary to remove the stake from the heart of the vampire banks and give them new blood.

Paul Krugman points out the problem in today’s New York Times. We can’t just give the vampires a transfusion and then think everything is going to be OK.  It won’t be long before they start stalking us again – offering 0% loans for six monthsb, then an interest rate tied to the value of the Russian Ruble divided by the ratio of the Euro to the dollar times the population of China at the end of the six month introductory period.  We need protection from the vampires. We need “stakeholders”, so to speak, who will stand up to these soulless, deathless entities and tell them “No more!”  Tim Geithner is hinting that he might be thinking that way, but is he a true vampire killer?  Is President Obama?

Many years ago our government (yes OUR government, meaning “us”) had laws that limited interest rates. Back in those days you couldn’t get a “Pay Day” loan.  (Check out My Cash Now.  Their annual interest rate is 485.45%!!!!!)  Then came a period of “deregulation”, i.e. leading the lambs to slaughter where the restrictions on interest rates were lifted and many of us got suckered into loans that drained us of everything we owned and the bloated banks still weren’t satisfied. Of course not; you can never satisfy a vampire.

Guess what?  I just checked the stock market.  They’re back.  What will President Obama do? I think he’s a smart guy. I think he wants to put the “us” back in “U.S.”, but so far he’s being cautious.  I think he doesn’t want to spook the vampires – same with Geithner.  I think both of them might be stealth vampire hunters, but it’s too early to tell. Meanwhile, I would be careful about taking out a new loan from any institution without calculating the total cost to repay it.  Try using an interest rate calculator like this one. For example, if you put in a loan of $10,000 at 18% interest for ten years you’ll find that you have to pay not only the $10,000 but also $7,989 in interest.  On the other hand if the bank jacks up the interest rate to 33% you have to pay $79,160 in interest!!  The vampires love that.

Until President Obama and Secretary Geithner rein in the bloodsuckers it’s best to be careful before taking out any new loans…. and whatever you do, don’t go into any bank after dark.

Ever.

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A hour ago Bernard Madoff pled guilty to what has been described as the largest Ponzi scheme in history.  Is seems that Mr. Madoff bilked quite a few people out of billions of dollars by telling them that he had a secret way of beating the market.  He always paid dividends that were much higher than the return other investors were making on their investments. He was a miracle worker, or so it seemed.  In actuality he was simply using new investor’s money to pay old investors: a classic Ponzi scheme.  It worked well for a long time – all he had to do was to keep finding new investment dollars. The collapse of global economy sort of put an end to new investments in Bernie’s scheme and that, ultimately, proved to be very inconvenient for him and somewhat more inconvenient for his investors who had gotten used to making remarkable earnings on their investments.  Bernie will be sentenced, probably to life in prison, in a few months or so.  His investors? Probably out of luck – their money is just gone.

As massive as the Madoff Ponzi scheme was, it pales in comparison to the Worldwide Real Estate Ponzi scheme that is responsible for the global loss of somewhere between $30 and $50 trillion of wealth (yes, trillion).  Just thinking about that number for a moment puts Obama’s $800 billion stimulus into perspective, doesn’t it?  One thing to note is that there is not enough money in the U.S. Treasury and probably not even enough money printing capability in the U.S. to provide refunds to everyone who lost part or all of their wealth.  It’s just gone.

The question now is: what should happen to the people who perpetrated this truly massive Ponzi scheme on the world? What should be done with all those whose complicity in this insane scheme directly led to the loss of millions of people’s 401k and 529 fund values?  What should be done to those who created Liar Loans?  What should be done to those who misrepresented the value of property in order to get a mortgage approved?  What should be done to those who rated toxic mortgages as AAA-rated?  What should be done to the bankers who sliced and diced the toxic mortgages and flipped them as fast as they could to the entire world?  What should be done to those who sold mortgage insurance on these toxic mortgages, called credit default swaps, knowing full well that their company couldn’t begin to cover the losses if these mortgages weren’t paid?  What should be done to the Wall Street bankers who took TARP bailout money, taxpayer funds meant to keep their banks from dissolving into a slimy, black pool of toxic sludge, and handed out multimillion dollar bonuses to the very people who created this gigantic Ponzi scheme?

Pretty good questions, huh?  Well, it turns out I’m not the only one who’s asking.  David Segal reports in today’s New York Times that federal investigators are starting to ask, more or less, the same questions.  It’s about time.  Isn’t it sort of surprising that Bernie Madoff rips off a fairly small number of very wealthy investors and before you can say “Free Market Capitalism” he’s hauled off to court and pleads guilty to an historic crime.  Meanwhile, as literally billions of people suffer from the greedy antics of our completely-out-of-control financial industry, we are just getting around to sort of starting to begin to think about maybe checking to see if anyone can be found who might possibly be responsible for the Worldwide Real Estate Ripoff.

So what do we do? What if it turns out that all the leaders of our financial industry are culpable?  What if every last one of our big time bankers is a crook?  Do we throw them all in jail? No, of course not. We need them – remember? Our banks are too big to fail.  Our bankers must also be too big to replace, right?  That’s why we can’t nationalize the banks: all the knowledge of the financial industry resides with these people. Who would run our financial industry if all the crooks were all in jail? The sad reality is this: we can’t throw them all in jail. The solution: find some scapegoats. Find a few of the top dogs, maybe 0.00 1% of the financial industry who probably can’t duck or hide from some massive financial fraud charges and haul them off to court and throw them in jail. Maybe they can get a cell next to Bernie.

Then we declare ourselves to be cleansed of the toxic infection and we take a few moments to mourn over the billions of people who lost their fortunes.  Everyone will feel a lot better and then we will turn our attention to rebuilding our economy.  Then we turn over the task of creating a new financial industry, with built in safeguards against any more Worldwide Real Estate Ponzi schemes, of course, to the same people who got us into this mess.

And then we start all over again.

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